The change in net working capital when evaluating a capital budgeting decision is
A) the change in current liabilities minus the change in current assets.
B) the increase in current assets.
C) the increase in current liabilities.
D) the change in current assets minus the change in current liabilities.

Question

Quizplus · Accepted Answer

The change in net working capital is the difference between the changes in current assets and current liabilities. This is because capital budgeting decisions involve cashflows that occur over time and can affect a company's working capital. A positive change in net working capital means that current assets have increased by more than current liabilities or current liabilities have decreased more than current assets. A negative change in net working capital means that current liabilities have increased by more than current assets or current assets have decreased more than current liabilities. Therefore, choice D is the correct answer.

The Change in Net Working Capital When Evaluating a Capital